Target Vendor Letter Sets Strategy to Compete with Online Retailers

Posted on January 24, 2012 by HFN Staff

MINNEAPOLIS-Target has detailed a new strategy to compete with online retailers that could include gaining price concessions from its vendors.

Detailed in a letter to vendors obtained by HFN, the new strategy is in response to the growing trend of shoppers visiting its stores to look at products, then buying those products from online retailers with lower prices.

The letter--signed by both Gregg Steinhafel, chairman, president and CEO; and Kathee Tesija, executive vice president of merchandising--said specifics of the program "could include providing a differentiated guest-focused assortment from online-only retailers that still includes best sellers ... pricing the same as online-only retailers without lowering our overall JBP margin ... developing membership- or subscription-based pricing online to compete with online pricing models in the market."

In a note to investors, Deborah Weinswig, Nathan Rich and Michael S. Palahicky, analysts with Citigroup Global Markets, said Target's moves are a response to its need to develop a strategy to compete more effectively in this new technology-driven retail environment. "Given its size, we believe (Target) is exercising leverage over its vendors to achieve the same pricing that smaller, online-only retailers receive," the note said. The three analysts cited in particular as a retailer that has taken advantage of this lower pricing.

The Target letter said the company understands consumers' efforts in using technology to find merchandise at the best price. "What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands, create a superior guest experience, provide hundreds of thousands of jobs and support local communities," the letter said.

The Citigroup note said, "We expect more and more brick-and-mortar retailers to rethink their pricing strategies in 2012 and increasing demand support from their vendors as they strive to compete with lower-priced online retailers."


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